Macro Horizons: Emerging Markets Again in Focus With Data Thin From Rich Countries

Macro Horizons covers the main macroeconomic and policy news events affecting foreign-exchange, fixed income and equity markets around the world, as selected by editors in New York, London and Hong Kong.

WRAP: Amid a dearth of data from advanced countries this week, attention could instead turn to emerging markets, where concerns about structural weakness in external accounts of a number of key economies have grown.

A state of emergency called in Thailand won’t do anything to improve investors’ view of that protest-wracked country. And with a rate decision later Tuesday, we will find out how the Turkish central bank is grappling with its own political and economic crisis. But in many respects, some of the most important information for emerging markets is emerging out of China, whose growth is crucial for their own capacity to export their way back to economic health. And on that score Chinese data since Monday have been moderately encouraging, although investors would be wise to watch developments in its banking sector following the release of rules allowing an accelerated write-down of bad debts. (MC)

CHINA: While the U.S. was on holiday for Martin Luther King day, China dumped a load of data on markets. Most important, its full-year GDP estimate came in at +7.7% on year, marginally higher than the government’s official target of +7.5%, but markedly weaker than the double-digit expansion rate seen over most of the past three decades. In the fourth quarter, the economy also grew 7.7% from its level a year earlier, a tad above expectations for a 7.6% increase. Separately, December’s industrial output grew 9.7%, compared with expectations for a 9.8% increase, fixed-asset investment in 2013 rose 19.6%, while December’s retail sales were 13.6% higher on year.

China’s leaders are beginning to address the costs sustained from its prior period of rapid growth, including pollution, wasted spending, corruption and financial fragility. But these changes entail growth-inhibiting measures such as clamping down on credit growth, shuttering factories in industries plagued by overcapacity and cleaning up local government debt. A number of economists expect the deceleration to continue in the first quarter of the year, as investment slows and China looks to deflate what appear to be property bubbles in its largest cities. In March, China is expected to adopt another growth target of 7.5%, which could signal how its leaders hope to balance growth with reform efforts. (CN)

CHINA: Beijing moved Tuesday to make it easier for banks to write off bad loans amid signs of rising problem debts in the world’s second-largest economy. Under the new rules, banks still have to show that they have done all they can to recover the funds but have greater freedom to write off personal business loans of less than 5 million yuan (about $826,000) after they have tried to recover the money for at least one year. Loans to small enterprises and to the agricultural sector of up to 10 million yuan can be taken off the books by the banks after one year. Previously the maximum had been 5 million yuan. Banks can also write off nonperforming assets if the funds haven’t been recovered after two years of liquidation procedures. Previously, banks had to wait three years.

The new loan write-off rules were posted on the website of the Jiangsu provincial financial bureau, though they were issued by the Ministry of Finance. People in the banking industry said the rules were also made available in other parts of the country. It wasn’t clear when they were issued, but they took effect Jan. 1. As economic growth slows, there’s been greater urgency to protect the banks for systemic risks. The new rules will make it easier for banks to clean up their books and could make them more willing to lend to small businesses, but it could also expose some hitherto hidden problems in a financial sector that has been growing credit at a very rapid clip for many years. (CN)

THAILAND: The government imposed a 60-day state of emergency in the capital, Bangkok.

The move follows weeks of intensifying protests by opponents of populist leader Yingluck Shinawatra and is bound to anger the demonstrators further. The political crisis has coincided with a deteriorating financial situation, with the Thai baht coming under significant selling pressure in recent months. (MC)

TAIWAN: Export orders in December rose a record 7.4% on-year to US$42.31 billion, according to data released Monday, well above expectations for a 2.14% increase.

Export orders were once reliable indicators of actual export numbers one or two months out, but their usefulness has declined recently as Taiwanese factories move more of their production into cheaper countries. At least one analyst attributed the spike in orders to rushed orders for Apple’s iPads and iPhones, some components of which are still made onshore in Taiwan. That suggests that export orders could taper off in the first quarter, particularly with the Lunar New Year holidays in late January. (CN)

NEW ZEALAND: The fourth-quarter consumer price index inched up 0.1% on-quarter, following a 0.9% rise in the third quarter, a moderation that partly stems from seasonal factors, including a fall in vegetable prices.

Although soft by historical standards, the fourth-quarter result was above market expectations for a fall of 0.1%, thus raising the possibility that the Reserve Bank of New Zealand will hike interest rates next week, with rising housing prices and a strong New Zealand dollar being the biggest drivers of that policy imperative. A Wall Street Journal poll of 11 economists taken just after the inflation data showed that, on average, they saw a 35% chance of a rate increase coming from the RBNZ’s policy meeting next week. While bets on a rate rise are increasing, most economists still believe a March hike is more likely. The benchmark rate hasn’t moved from 2.5% since March 2011, when it was cut to a historic low to help the nation recover from devastating earthquakes in New Zealand’s second-largest city, Christchurch. (CN)

GERMANY: The January ZEW sentiment survey’s index of business expectations fell to +61.7 from +62.0 in December, defying forecasts for another rise to +64.0. The current conditions index was much stronger, however, rising to +41.2 from +32.4, whereas economists had forecast a reading of +34.0.

German sentiment surveys have been stronger than the underlying data during recent months, so the slip in expectations among the ZEW’s 254 analysts and institutional investors may simply be a case of catch-up. Even with that decline, however, the overall picture of the Germany economy continues to be one of strength. (MC)

U.K.: December CML gross mortgage lending unchanged from November at GBP17 billion while the January CBI industrial trends balance rises to +23 from +16 in December. By contrast, the CBI industrial export orders fell to -16 from +11 and the CBI industrial order book balance fell to -2 from +12.]

On a current conditions-basis these data show the U.K. economy humming along with all the gusto it has shown for the past six months, led as much as anything by domestic consumer demand which, in turn, has been helped by a pickup in housing and mortgage credit. But the forward-focused elements of the CBI indicator’s order book are less encouraging and offer a reminder that exports remain a big challenge for U.K. producers. (MC)

The lira’s persistent weakness–it keeps hitting new lows against the dollar–is putting pressure on the central bank to tighten policy to keep inflation in check despite a soft economy and political upheaval. In a mark of this central bank’s historical preference for monetary stimulus over financial stability, however, most economists expect it to make no change in policy. (AM)

Hungary’s central bank has been cutting rates steadily since August 2012–the key rate was 7.0% then, it’s 3.0% now. With inflation at near 40-year lows, there’s scope for yet another 0.2 percentage points to come off the official rate. (AM)

Any figure over 100 means optimists outnumber pessimists. This indicator should provide a view on whether the central bank’s interest rate cuts have encouraged consumers to spend more. But given the sharp fall in Australian employment in December, it’s likely that consumer sentiment deteriorated further in January. (CN)

After the sharp fall in employment in December, the Reserve Bank of Australia must surely be tempted to lower interest rates further to cushion the economy from the slowdown in the mining sector. But the risk is lower rates could lift inflation and fuel a housing bubble. Inflation has been largely tame in recent years, staying well within the central bank’s target range of between 2% and 3%. But that was largely due to downward pressure on import prices from the Aussie dollar, which traded near historic highs for much of the past three years. With the Aussie dropping to its lowest levels in almost 3 1/2 years Thursday, low inflation can no longer be taken for granted. (CN)